We Think That There Are Some Issues For Sona BLW Precision Forgings (NSE:SONACOMS) Beyond Its Promising Earnings

Sona BLW Precision Forgings Limited (NSE:SONACOMS) just released a solid earnings report, and the stock displayed some strength. While the profit numbers were good, our analysis has found some concerning factors that shareholders should be aware of.

Check out our latest analysis for Sona BLW Precision Forgings

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, Sona BLW Precision Forgings increased the number of shares on issue by 5.9% over the last twelve months by issuing new shares. Therefore, each share now receives a smaller portion of profit. To talk about net income, without noticing earnings per share, is to be distracted by the big numbers while ignoring the smaller numbers that talk to per share value. You can see a chart of Sona BLW Precision Forgings' EPS by clicking here.

A Look At The Impact Of Sona BLW Precision Forgings' Dilution On Its Earnings Per Share (EPS)

Sona BLW Precision Forgings has improved its profit over the last three years, with an annualized gain of 81% in that time. And at a glance the 23% gain in profit over the last year impresses. But in comparison, EPS only increased by 22% over the same period. And so, you can see quite clearly that dilution is influencing shareholder earnings.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So Sona BLW Precision Forgings shareholders will want to see that EPS figure continue to increase. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. For that reason, you could say that EPS is more important that net income in the long run, assuming the goal is to assess whether a company's share price might grow.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Sona BLW Precision Forgings' Profit Performance

Sona BLW Precision Forgings shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Therefore, it seems possible to us that Sona BLW Precision Forgings' true underlying earnings power is actually less than its statutory profit. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. In terms of investment risks, we've identified 2 warning signs with Sona BLW Precision Forgings, and understanding these should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of Sona BLW Precision Forgings' profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.